Coming Up Short in 2017, Carl Icahn’s Investment Fund Turns More Bullish

An investment fund run by Carl Icahn returned 2.1% in 2017, far behind the nearly 22% total return on the Standard & Poor’s 500 index, reflecting what Icahn called the fund’s “substantial hedging activities.”

The returns were disclosed this morning when the activist investor's publicly traded vehicle, Icahn Enterprises (ticker: IEP), reported its results for the fourth-quarter and the year. Icahn Enterprises has a $3 billion investment in the investment fund, effectively a hedge fund.

For the fourth quarter, the investment fund had a negative 4.2% return.

On a conference call this morning, Icahn Enterprises CEO Keith Cozza said the fourth-quarter decline reflected losses from a short position in the equity market and “credit,” possibly credit default swaps or other ways to play the high-yield credit market.

He said that the fund was repositioned more bullishly in the fourth quarter, ending the year with a net long position of 14% against a net short position of 77% at the end of third quarter. The fund had a net short position of 128% at the end of 2016.

Cozza said the more bullish stance taken by the fund reflected a “more constructive view” on the stock market by Icahn in the fourth quarter partly reflecting the prospect of lower corporate taxes. He added that with equity “valuations at all-time” highs, the fund remains conservatively positioned.

Icahn Enterprises’s thinly traded partnership units are up $3, or 5%, to $57.60 in morning trading. The company reported net income of $1.72 per unit in the fourth quarter, compared with a loss of $1.42 in the fourth quarter of 2016. The company increased its quarterly distribution to $1.75 a unit from $1.50.

By our calculation, the units trade at a premium to the company’s indicative net asset value of about $46 per unit at the end of 2017 based on some 170 million outstanding units.

The indicative asset value of $7.9 billion reported by the company reflects the value of the investment fund and the company’s other holdings, including stakes in CVR Energy (CVI) as well as Federal Mogul and other privately held investments.

In a statement, Icahn, who did not take part in the conference call, said:

I am very pleased with IEP's performance for 2017. Our net income of $14.80 per depositary unit is the highest in our history. The Investment segment performed satisfactorily, especially in light of the fact that this performance would have been much greater if it were not negatively impacted by our substantial hedging activities, which we use to mitigate down-side risk. Additionally, the majority of our operating subsidiaries also performed admirably.

Icahn, 82 year old, owns a roughly 93% stake in Icahn Enterprises, where he is chairman.

Icahn's investment fund is the largest holder of Herbalife (HLF) with a 24% stake and has scored from the 65% gain in the nutritional-supplements company in the past year.

That gain came at the expense of activist investor Bill Ackman, who told CNBC on Wednesday that he had unwound what had been a $1 billion short bet against Herbalife. Ackman and Icahn had clashed publicly -- and ferociously -- over the nutritional food supplements comapny.

On CNBC this afternoon, Icahn said that Ackman had contacted him. “He called me up yesterday and congratulated me. It was a classy of him to do that,” Icahn said.

“I enjoy a good fight especially when I win,” he added. Icahn called Herbalife a “great company” that makes “great products.” Icahn said he had not sold a “single share.”

Also in the interview, Icahn said his major worry for the stock market is “creeping inflation.” That could lead to higher rates and make it “difficult” for the stocks. “I don’t think that anybody really knows where this market will go on a short-term basis.”

Icahn told CNBC that he has a “large position” in Newell Brands but didn’t specify the size other than that it is less than 5%. He added that the company is “undervalued.”

His fund’s largest holdings, American International Group (AIG) and Cheniere Energy (LNG), a producer of liquefied natural gas for export, have trailed the market in the past year. The fund’s long positions rose 5.4% in 2017, way behind the market, and the shorts cost the fund 3.3%.

The 2.1% performance of the fund last year compared with poor showing in 2016 when it lost 20.3%.

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Coming Up Short in 2017, Carl Icahn’s Investment Fund Turns More Bullish

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